The Polish beer market is facing significant challenges as sales volume declines, yet this does not necessarily equate to a decrease in market value. The issues arise when falling volumes coincide with increasing costs and limited capacity for raising prices. James Smith, the Vice President of Finance at Kompania Piwowarska, discusses the current financial landscape of the industry.
Smith, who has extensive experience in the brewing industry across the UK, Czech Republic, and Poland, notes that Poland is becoming a particularly demanding market within Europe. This is evident in the challenges presented by the current deposit system, which, while supporting effective recycling goals, is hampered by high costs and a lack of transparency in calculations. He warns that if the return rate of packaging reaches 85-90% as seen in other markets, the resulting costs could severely burden the industry.
Additionally, the planned increase in excise tax by 20% instead of the legislated 5%, along with discussions about restrictions on the sale and marketing of alcoholic products, further complicates the landscape. Such a tax hike would place additional cost pressure on the industry, thus affecting consumer prices.
While some challenges are not unique to Poland, such as the growing health consciousness among consumers leading to decreased alcohol consumption, the regulatory aspect stands out. The speed and uncertainty of changes create difficulties in making long-term investment decisions.
Smith identifies increasing health awareness as a key factor contributing to the ongoing decline in beer sales, as consumers are drinking less and being more mindful about their choices. Moreover, demographic shifts in Poland, with a shrinking and aging population, also play a role in this trend.
Despite the decline in volume, Smith emphasizes that revenue depends on not just volume but also on selling price and brand mix. Even with high inflation, beer prices have not kept pace. Poland’s lower premium brand market share compared to Western Europe and the Czech Republic means that premiumization, which can boost sales value, is not yet fully realized.
Nevertheless, there is an opportunity for value growth, which should not rely solely on increased consumption of alcoholic beer. Instead, it could come from more consumers opting for premium and specialty brands, as well as the rising popularity of non-alcoholic beers to meet new consumption occasions.
The declining volumes pose a major challenge to profitability by pressuring operational scale, production efficiency, and the ability to absorb fixed costs. This is compounded by increasing excise taxes, inflation, and new regulatory costs.
The economic model of brewing beer largely depends on scale. In recent years, the category has contracted significantly, resulting in millions of hectoliters not being brewed, packaged, or transported. Consequently, breweries and their associated investments in packaging lines and storage are underutilized.
Smith emphasizes that the company is actively working on cost management and enhancing efficiency. They are continually seeking ways to reduce costs and adopt technologies that improve efficiency without compromising quality. A recent investment includes a new automated warehouse in Poznań.
While value growth can help restore margins, it does not return production capabilities. Continued volume declines, even at a moderate pace, will perpetuate the inefficiencies caused by this trend.
Addressing the issue of pricing, Smith explains that the starting point involves regulatory costs such as increasing excise taxes and the deposit system. While the industry strives to minimize the impact on consumers, the scale of these burdens means that complete absorption is not feasible, and some pressure will likely reflect in prices.
However, the picture is not entirely bleak. Polish consumers currently fare relatively better than those in many neighboring European countries. The economy is growing steadily, wages have increased, and consumers have more disposable income. Nonetheless, some households still feel the strain of heating and fuel costs.
Beer remains a price-sensitive category, especially in mainstream segments. It is understood that a significant or rapid increase in prices of major brands could negatively impact consumption.
Smith sees a greater opportunity for premiumization rather than simply raising prices. As Poles travel more, a trend towards premiumization is observable in other categories, such as coffee. Consumers are willing to pay more if higher prices correspond with higher quality or unique experiences.
For beer, this means focusing not just on increasing the prices of existing products but also on innovations and new products that justify higher prices. Brands like Peroni Nastro Azzurro and Książęce exemplify this direction.
Regarding the regulatory environment in Poland, Smith notes that Asahi continues to grow its business there, recently launching a new automated warehouse in Poznań, an investment exceeding 200 million PLN. They are also pursuing projects that support sustainability goals, such as an 11 million PLN investment in the Poznań brewery to further reduce brewing losses.
However, current and prospective regulations make predicting profit and loss accounting challenging. With anticipated high costs related to the deposit system and the unpredictable implementation of such systems, precise forecasting remains difficult. Similarly, potential changes in excise duty affect assumptions about volume, pricing, and thus profitability.
Asahi remains committed to investing in Poland, but in a region where capital is allocated regionally and globally, a stable and predictable environment is a natural asset. Long-term decisions regarding brewing, logistics, or sustainability require firms to understand the regulatory and cost conditions these investments will face.
When it comes to funding innovations during periods of weaker demand, Smith acknowledges that despite overall declining volumes, there are still growth segments warranting investments. Interest in non-alcoholic beers is rising, alongside rapid innovation in that segment. Premium international brands like Peroni Nastro Azzurro are also seeing strong year-on-year growth.
Non-alcoholic beers currently account for nearly 8% of total beer volume in Poland, compared to around 10% in the Czech Republic, 14% in Germany, and 17% in Slovakia, indicating room for development in this category.
As a response, investments are being made in technologies that support these segments. Packaging capability for non-alcoholic beers has been enhanced with 330 ml cans, while the Captain Jack line has been refreshed with bottles featuring ring pull caps. Additionally, the Książęce Miodowy Lager has undergone refinement in its recipe and production process. Such investments are crucial as the future of the category will depend on better alignment of products with consumer needs and various consumption occasions.
Looking ahead over the next two to three years, Smith does not anticipate a return to volume growth for the Polish beer market. Demographic changes and a more conscientious consumer attitude toward alcohol suggest that volumes will remain under pressure. However, this does not mean the category cannot demonstrate sustainable value growth.
A consistent increase in the share of premium and non-alcoholic beers would be an important signal for Smith. Since these segments are still smaller in Poland compared to many other European markets, there is ample opportunity to build value.
A second indicator would be a more stable regulatory environment. Assessing investments and competing for capital becomes easier when changes are proportional, predictable, and implemented with sufficient lead time. Such stability allows for investment in innovation and efficiency rather than focusing primarily on absorbing new costs.
Therefore, the future of the Polish beer category is not merely about increasing volume; it concerns value growth and stable conditions that facilitate investment in the sector.
